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India's Tata Motors expands production to Indonesia

The Indian automobile giant Tata Motors has announced it will set up a new subsidiary in Indonesia. The venture is significant but also challenging.

India's Tata Motors has been exploring the idea of branching out into Indonesia for over a year now. Recently, in a statement, the company announced it will start assembling cars and trucks there, with operations due to commence next year. The company did not disclose the exact location of the plant.

Tata's entry into Indonesia is significant as it provides the company access to the Association of Southeast Asian Nations (ASEAN) market.

"Tata has been selling vehicles in this region and a local manufacturing presence will help it compete with companies already present in Indonesia, which is the second largest market in ASEAN after Thailand and is likely to become number one market this year," Frankfurt-based Automobile consultant Amitabh Thakur told DW.

Ratan Tata is Tata's CEO

"Tata's move to invest in Indonesia could also have been driven by the persistent weakness in operations in India. India's manufacturing sector has had poor performance for the past five quarters," Amitabh Thakur added.

Nano market

The automobile manufacturing company offers a wide range of products from small cars to buses in passenger vehicles, and commercial vehicles ranging from 0.5t mini trucks to 49t heavy trucks. Though Tata has not given any details about the models to be sold in Indonesia, its CEO Ratan Tata in the past hinted that Tata Motors would start assembling its small Nano cars there. The Nano, also known as the one-lakh car, as it originally cost one lakh rupees, or 100,000 rupees, which is equivalent to nearly 1,400 euros, is said to be the cheapest automobile in the world.

Though the price for a Nano is somewhat higher today - approximately 50 million rupees, or 3,500 euros - Tata expects Indonesia, with an average annual per capita income of about 4,000 US dollars, or 3,000 euros, and a population of 240 million, will provide a good market for sales.

Tata Motor Indonesia's President Biswadev Sengupta said there was a large opportunity for all Tata vehicles in Indonesia, as "operating conditions and customer needs [in Indonesia] are very similar to those in India."

Although there was a drop of around 20 percent in the number of new cars sold in Indonesia in August, there was an overall increase in sales of 28 percent for the first six months of this year.

"Indonesia is in the middle of growth driven by rising demand and consumer confidence. Such a high-growth environment should provide room for Tata and a welcome change from tough conditions prevailing in India," said Amitabh Thaur.

Convincing consumers

The Tata Nano is said to be the world's cheapest car

But it will not be handed to Tata. The company will "have to convince the customers. Nano will first have to develop its brand image, establish a distribution network and make spare parts available," Yongky Sugiarto, head of the Indonesian Automobile Association GAIKINDO says.

The Indian company plans to have about 10-15 dealers established in Indonesia at the time of launch. In the course of three years, Tata plans to have 60 full service dealerships, 100 workshops and 300 outlets for spare parts.

Tata Motors is also taking part in the 20th Indonesia International Motor Show in Jakarta from Sep 20, 2012. It will showcase 14 models of its passenger and commercial vehicles which are being considered for progressive introduction in Indonesia.